Thornsbury v. Cabot Oil & Gas Corp., Civil Act. No. 08-C-255-S (W. Va. September 26, 2013)
In a per curiam opinion, with two Justices dissenting in part, the Supreme Court of Appeals of West Virginia reversed and remanded summary judgment granted to Cabot Oil & Gas Corporation (“Cabot”) on a breach of contract claim brought by the surface owners (the “Thornsburys”) of a 30-acre tract located in McDowell County, West Virginia. The Thornsburys acquired the surface estate of the 30-acre tract in 2001, while Cabot acquired its interest in the oil and gas rights underlying the 30-acre tract by a lease dated October 22, 1949.
The crux of the majority opinion centered on a 2006 contract between Cabot and the Thornsburys under which Cabot would construct a 200-foot access road across the 30-acre tract in exchange for $500. Cabot also agreed to stack the salvageable timber removed during construction for the Thornsburys. Following the execution of the agreement, Cabot entered the Thornsburys’ tract and constructed a 1,300-foot access road, drilled a natural gas well, and erected an above-ground pipeline. (It is not clear from the opinion if the well was located on the Thornsburys’ 30-acre surface estate.) In doing so, Cabot allegedly failed to stack any timber.
The Thornsburys sued Cabot alleging that it violated the 2006 agreement by building a road longer than 200 feet, placing the road in the wrong location, and failing to stack the timber that had been cut. In response, Cabot asserted that its operations were permitted under the 1949 lease and that it had only entered into the agreement with the Thornsburys out of an abundance of caution, to confirm its right to construct the road and avoid any dispute as to the surface property boundaries. Cabot relied on exculpatory language contained in the 1941 severance deed, executed by its predecessor, which permitted the mineral owner to operate on the 30-acre tract “without liability . . . for any injury to the surface of said land or to any structure or other property thereon by reason of removing minerals.”
The Circuit Court agreed and granted summary judgment. On appeal, the majority opinion reversed, finding the 2006 contract between the parties superseded the 1941 deed, see Syl. Pt. 1, Lewis v. Dils Motor Co., 148 W. Va. 515, 135 S.E.2d 597 (1964), as to the length of the road to be constructed, the location of the road, and the stacking of the timber.
The most interesting issues raised in Cabot were those not directly addressed by the majority and the findings rendered in the dissenting opinion. In response to the defenses Cabot raised under the 1949 lease, the Thornsburys—who did not have an interest in the lease—countered that the lease required Cabot to “bury all permanent oil and gas lines . . . pay for all damages done to timber, fences, buildings, or crops, or other property.” The Thornsburys also asserted that the 1949 lease, and a subsequent lease from 1964 (which was apparently executed to extend the 1949 lease), expired due to Cabot’s failure to drill or produce within the primary term. Interestingly, the court expressly found “[t]he Thornsburys were not a party or in privity to this lease[,]” but did not make a finding whether surface owners are entitled to raise such issues. The Court also noted that to the extent the Thornsburys intended to pursue any damages outside of the contract for surface damages, under West Virginia common law, the Circuit Court would have to determine whether Cabot has any liability for the portion of the road that exceeds 200 feet under the common law “reasonable necessity” standard.
The dissent, authored by Justice Loughry and joined by Justice Benjamin, vastly disagreed with the majority’s finding that Cabot, via the 2006 agreement, was only permitted to build a road two hundred feet in length. Justice Loughry found that “Cabot, as the lessee of the minerals underlying the Thornsburys’ property, ha[d] the right to enter the property and do what [was] reasonably necessary to extract the minerals, which include[d] the right to construct a road to its drilling site.”
He found the 2006 agreement was not for the purpose of allowing Cabot to build a road, but rather because it was uncertain as to the boundary lines of the properties and wanted to “avoid any potential dispute with the adjoining land owner” as to the location of the road. The dissent similarly failed to address the issue of whether surface owners could challenge the validity of a lease in which they have no interest, but did find that Cabot’s interest in the 1949 lease was enforceable. As such, lessees can continue to rely on Justice v. Pennzoil Co., 598 F.2d 1339, 1344 (4th Cir. 1979), and general contract principles to assert that surface owners lack such standing.
This article was authored by Rodney W. Stieger, Jackson Kelly PLLC. For more information on the author, see here.